Response to an Attack by Oleksa Shalayskiy, the Chief Editor NashiGroshi

By Tymofiy Mylovanov, Kyiv School of Economics

Tymofiy Mylovanov (left), Oleksa Shalayskiy (right)

Oleksa Shalayskiy is the Chief Editor of a very reputable anti-corruption watchdog NashiGroshi[1]. I applaud Oleksa’s tremendous contribution to building a better, less corrupt Ukraine.

Recently, Oleksa attacked my post and my character. In his attack, Oleksa used a straw man fallacy and accused me of making an argument I did not make. I believe it is important for Oleksa’s audience to know that he engages in lies and rhetorical manipulations.

In my post, I commented on a number of issues, including corruption, weaknesses of the state, public support for reforms, brain drain, salaries of public officials, the role of small and medium business, and more. I offered these comments as an economist who had studied institutional design of groups, organizations, and societies for over 18 years. My competence on these issues has been recognized in numerous ways, including:

(a) tenure at the University of Pittsburgh;

(b) publications in the top economics journals such as Econometrica, American Economic Review, Journal of Economic Theory, Review of Economic Studies, etc.;

(с) invitations to present my work at Harvard, MIT, Stanford, Princeton, Yale, University of California at Berkeley, University of Pennsylvania, etc.;

(d) top 2 and top 4 Ukrainian economist ranking by Forbes.ua;

(e) publications in the New York Times, the Washington Post, the National Interest, etc.;

(f) the appointment by the parliament of Ukraine to the Council of the National Bank of Ukraine;

(g) an invitation to a task force commissioned by the EU Commission to review the EU security policies; and

(h) an appointment to lead the Kyiv School of Economics.

Oleksa’s reaction was likely provoked by my first paragraph. There, I argue that the issue of incompetence is more important than that of corruption. We live in a democracy and everyone is entitled to his opinion, both Oleksa and I. We settle differences of opinion through a debate. Our audiences deserve the best and the most informative arguments. In a debate, manipulative tactics, personal accusations, and outright lies distract and confuse. Oleksa and I are better than that.

Where did Oleksa lie? In the second paragraph of his post, he said: “На думку Тимофія — основна проблема нашої держави не корупція, а непрофесіоналізм. Припустимо. Як він хоче це вирішити? Державними грішми, як будуть залиті в вузи і, зокрема, в його вуз — Київську школу економіки.” This can be translated as: “In Tymofiy’s opinion — the key problem in Ukraine is not corruption, but incompetence. Fine. What solution does he offer? State support to Ukrainian universities, including the Kyiv School of Economics.

But the truth is I wrote exactly the opposite:

“Що можна зробити? Я не вірю, що уряд спроможен створити дослідніцькі центри і університети де буду створюватись і працювати інтелектуальна еліта України. Але це може бути зроблено малим та середнім бізнесом. Бізнес та багаті люди можуть взяти на себе відповідальність за інтелектуальний суверенітет України, почати носити трошки менше грошей на Печерські пагорби, а зекономлені гроші витрати на підтримку освіти, досліджень, професорів та студентів — тут, в Україні.”

The translation is “What can be done? I do not believe that the government is capable of creating research centers and universities in which Ukrainian intellectual elites will be grown. Instead, this task can be done by the small and medium size business. Business and rich individuals can take on the responsibility for the intellectual sovereignty of Ukraine, decrease the amount of money [bribes] they pay to the government and spend their funds instead on education, research, faculty, and students — here, in Ukraine.”[2]

This is called straw man fallacy, when a speaker accuses an opponent of an argument he did not make and then argues against it.[3]

In his post, Oleksa further accused me of systemic effort to harm Ukrainians and implied that I am paid by the government for propaganda. Unlike the statement about “demand for state budget support for the KSE”, Oleksa does not offer any facts or justification for his statement. And so I cannot refute them. I very much hope Oleksa provides such facts so I can respond or withdraws his accusations.[4]

I now would like to turn to the substance of my and Oleksa’s arguments. I argued that corruption is a symptom, a consequence of the structural problems in the economy. And that in order to remove corruption we need to, first, remove these problems. In other words, I favor the approach of minimizing opportunities for corruption rather than punishing those who use them (while of course both approaches are valid and needed). In my opinion, the problem with the latter approach is that it does not work. If the economy is corrupt, so are the law enforcement agencies. The end result: instead of fighting corruption, the law enforcement agencies might choose to extract funds from corrupt officials who have extracted them from the economy. The punishment for corruption effectively becomes a private tax revenue for those who have control over the law enforcement agencies. The government then, counterintuitively, has incentives to create more, not fewer, opportunities for corruption since this allows them to extract more bribes through prosecution. Of course, this is just my opinion, based on my and other people’s research. This opinion can be wrong.

Another point I made was about the need to support education and, especially, research! This can be done both by the taxpayer’s and private money. I advocated for private funding. Private support forces universities to work harder to convince donors that they create value for the society and businesses.

By contrast, Oleksa argued that there is no need to support education until the Ukrainian economy becomes competitive. Competition among businesses will translate into competition for talent, which in turn will translate in demand for good education. This is a valid point to which I subscribe too. However, the education industry is plagued with what is called externalities. The main beneficiaries of education will be both students and the society. The students will not internalize the positive benefits their education will confer on the rest of the society and so will not be willing to pay the real value of their education for the society. Furthermore, the students might not have access to perfect financial markets to finance their education.

In addition, in my post I tried to talk about the need to create Ukraine intellectual elites. The places to do it, in my opinion, are universities. We need universities that will teach the culture of freedom of speech, tolerance, respect for facts and scientific approach. This is a supply side argument. Culture will not create itself. It has to be an organized effort by those in the society who care about the future of Ukraine. This effort is expensive and has to be funded by (private) donors. Oleksa disagrees and this is his right. He does not have a right, however, to misrepresent my arguments and unjustly accuse me of propaganda, corruption, or incompetence.

The substantive issues Oleksa and I raise in our posts are important. I very much hope that Oleksa and I will continue to debate them and will do so in a constructive way.

__________________________________________________________________

[1] See NashiGroshi web-site (accessed on Aug 24, 2017)

[2] Furthermore, I have a record of public statements arguing against unconditional state budget support for development of both industry and education. Examples could be found here (a letter cosigned by a number of high profile reformers and several business associations) and here.

[3] Oleksa also makes some basic economics terminology errors. In the third and fourth paragraphs, he offers his view on what is wrong with the Ukrainian economy. He claims that “5. В Україні немає відкритої економіки. Її знищує корупція. І в першу чергу — політична.”, translated as “Ukraine is not an open economy. Open economy is destroyed by corruption. First of all, political corruption.”. The term “open economy” both in Ukrainian and English means that “there are economic activities between the domestic community and outside”. Consequently, most economists would consider Ukraine to be a small open economy. Indeed, the export and import of Ukraine constitutes about 40% or more of the GDP each. In 2015, for example, Ukraine was the 50th largest exporter in the world.

Most likely Oleksa used adjective “open” in its colloquial sense as in “open for competition”. The more appropriate economics term would be barriers to entry. I agree with Oleksa that barriers to entry in Ukraine are substantive and some of these barriers are politically created. Oleksa is also correct, in my opinion, that in order to remove these barriers we need to eradicate political corruption. That is (my interpretation), we need to separate business from politics.

[4] My income is reported at NAZK website. I receive income from the National Bank of Ukraine, the University of Pittsburgh, and the Kyiv School of Economics. My income from the NBU is for my service on the supervisory body of the bank, the Council. I have been appointed to the Council by the parliament and there are constitutional protections in place to afford me independence of opinion. In my work, I am accountable to the people of Ukraine and not to any individual in the government, business or academia.

)
Kyiv School of Economics

Written by

Official profile of the Kyiv School of Economics (KSE) http://www.kse.org.ua/uk/

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade